BofA Says Profit Quadruples as Mortgage Costs Ebb

Moynihan has spent more than $50 billion on mortgage and foreclosure disputes and the company still faces demands that it atone for activities that contributed to the 2008 credit crisis. Photographer: Ron Antonelli/Bloomberg

Jan. 15 (Bloomberg) -- Bank of America Corp., the second-biggest U.S. lender, quadrupled its quarterly profit and beat
Wall Street estimates as the company quelled claims tied to
defective mortgages. The stock reached its highest level in more
than three years.

Fourth-quarter net income rose to $3.44 billion, or 29
cents a diluted share, from $732 million, or 3 cents, a year
earlier, according to a statement today from the Charlotte,
North Carolina-based firm. The average estimate of 27 analysts
surveyed by Bloomberg was 27 cents, adjusted for one-time items.
For the full year, profit more than doubled to $11.4 billion.

Chief Executive Officer Brian T. Moynihan, 54, has spent
his four years atop Bank of America resolving disputes tied to
shoddy home loans and foreclosures, mostly from his
predecessor’s 2008 takeover of Countrywide Financial Corp. He
signaled in November that attention is shifting from the
mortgage cleanup to improving performance at operating units,
calling his firm a “huge battleship” that is gaining speed.

“They’re looking considerably better than a year ago,”
said Marty Mosby, a bank analyst at Guggenheim Securities LLC
with a neutral rating on the stock. “The Street now believes
their story, which is that remaining mortgage costs will be
manageable.”

Shares React

Bank of America advanced 2.3 percent to $17.15, its best
level since May 2010. The lender rose 34 percent last year,
compared with 35 percent for the entire KBW Bank Index, and it’s
leading the 24-company benchmark this year with a 10 percent
gain. Analysts including Citigroup Inc.’s Keith Horowitz had
upgraded the firm to a buy in anticipation of lower expenses.

The bank showed improvements in various performance gauges
as revenue in the quarter rose 14 percent to $22.3 billion,
excluding accounting charges. Adjusted net interest income
increased 4 percent, according to the bank, and non-interest
income jumped 28 percent as costs eased for refunds to investors
on defective mortgages.

The net interest margin, the difference between what a bank
pays for funds and what it earns on loans and investments,
improved to 2.56 percent from the 2.44 percent reported in the
third quarter and 2.35 percent a year earlier.

The return on average shareholder’s equity was 5.74 percent
in the fourth quarter and 4.62 percent for the full year. That’s
less than the company’s managers would like, Chief Financial
Officer Bruce Thompson told analysts during a conference call.
By contrast, Wells Fargo & Co. reported a 13.8 percent ROE for
the quarter and JPMorgan Chase & Co.’s was 10 percent.

Revenue in the fixed-income, currency and commodities sales
and trading division increased 16 percent $2.1 billion on
stronger results in credit and mortgage products. Equities sales
and trading revenue added 27 percent to $904 million on
increased market volumes. Income at the global banking unit fell
9 percent to $1.27 billion on a higher provision for credit
losses.

“We feel very good about the pipelines that we have in the
investment banking business,” Thompson said in remarks to
reporters. The year is off to a “reasonable start,” and
“there’s nothing at this point that would have me send up a
note of caution besides just realizing that the fourth-quarter
was extremely strong.”

Cost Savings

Profit increased 36 percent to $1.97 billion at consumer
and business banking, run by David Darnell, and losses narrowed
in consumer real estate to $1.1 billion from $3.7 billion.
First-mortgage originations declined 46 percent as demand faded,
the bank said. Global wealth and investment net income rose 35
percent to a record $777 million, according to the bank.

The efficiency ratio, a gauge of cost controls,
deteriorated to 80 percent from 75 percent in the third quarter,
while improving from 97 percent a year earlier. The bank said it
met its cost-cutting targets for 2013. Moynihan eliminated 5,826
full-time jobs during the quarter, reducing the staff to
242,117, a 9 percent annual drop.

Litigation expense was $2.3 billion before taxes. Results
benefited from a $1.9 billion drop in its credit provision from
the year-earlier period amid falling loan losses. Reserve
releases will slow down in 2014, Thompson said.

Economic Boost

“You’ve got to give them a lot of credit,” former General
Electric Co. Chairman Jack Welch said today in an interview on
Bloomberg TV with Erik Schatzker and Trish Regan. “They were
down as low as you can get and Brian’s brought the team back.
He’s done a good job.”

Investors could choose Bank of America and bigger rival
JPMorgan to take advantage of an improving U.S. economy,
Horowitz wrote in a Jan. 2 research note.

Bank of America “remains the most dependent of its peers
on U.S. economic growth,” said Matthew Burnell, Wells Fargo’s
bank analyst, in a note after results were announced. “However,
we would not expect the stock to trade significantly above
tangible book value until management demonstrates greater
progress in resolving legacy mortgage issues and restoring a
more meaningful dividend.” He has a neutral rating on the
company, which reported tangible book value of $13.79 a share.

The bank’s top executives declined during the analysts’
conference call to elaborate on plans for any payout increases.

Legal Outlook

Moynihan has spent more than $50 billion on mortgage and
foreclosure disputes and still faces demands that the firm atone
for activities that contributed to the 2008 credit crisis.

Bank of America may have to pay $5 billion to $8 billion to
settle a Federal Housing Finance Agency suit after JPMorgan.’s
$4 billion accord set “a relatively high bar,” Fitch Ratings
said in October. The FHFA lawsuit cited about $57 billion of
mortgage-backed securities from Bank of America, compared with
about $33 billion in the JPMorgan case, Fitch said.

The lender also faces a U.S. lawsuit for claims it misled
investors over the quality of mortgages within an $850 million
bond and said in October that the Justice Department may file
another suit tied to home loans.

JPMorgan said yesterday that fourth-quarter profit fell 7
percent at the New York-based bank to $5.28 billion on costs
from legal settlements. San Francisco-based Wells Fargo, the
biggest home lender, said net income rose 10 percent to $5.61
billion, setting a record for the quarter and the year.
Citigroup reports results tomorrow.